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who come along in the future could have room to undercut Dendreon on price. Perhaps most importantly, Dendreon could spark a backlash among prostate cancer patients. The company now is seen by many as a white hat that’s persevered in a quest to save their lives. But that could turn into a black hat if it were accused of being a greedy price-gouging pharma company like many others are perceived.
The trick is to find the balance between generating just the right amount of cash flow to make the shareholders wealthy, without becoming the greedy bad guy that’s raiding grandpa’s life savings.
“Pricing in the pharmaceutical industry is really more of an art than a science,” says Mark Monane, an analyst with Needham & Company, whose firm has done investment banking for Dendreon.
There’s no spot-on benchmark drug on the market for Dendreon to use for comparison, because its product is the first of its kind. But when it talks about other “novel biologics that extend lifespan,” then it wouldn’t be a stretch to say that Dendreon is probably using Roche’s bevacizumab (Avastin) or Eli Lilly’s cetuximab (Erbitux) to gauge exactly how much the marketplace is willing to pay for proven antibody drugs. Roche’s drug for lung cancer costs $8,900 a month, which can add up to $100,000 or more, while the Lilly product costs about $80,000 per patient.
One big difference is that many cancer drugs are taken on a recurring basis, with the patient returning regularly to the doctor’s office for an infusion. Dendreon’s drug is different in that it is given in three infusions over one month, and then the patient is done with his course of therapy.
Most of the patients with prostate cancer are over the age of 65, so they are eligible for Medicare benefits. The U.S. health insurance program for the elderly generally covers 80 percent of the cost of a cancer drug. If the Dendreon treatment is priced at $60,000, that means about $12,000 will be left uncovered by Medicare. Most patients have supplemental health insurance to cover much of the remaining expense. The remainder will be paid out of their own pockets.
Dendreon, like other makers of expensive cancer drugs, is expected to have a program in which it will donate the drug to people who need it and can’t afford it. This is called a patient assistance program. There could also be rebates that cut into Dendreon’s pricing structure, Monane says. That’s why Monane expects Dendreon to price the drug at a level higher than $50,000, but ultimately to be able to record about $50,000 per patient in revenue from the product. He doesn’t expect a lot of “pushback” from insurers about the price. Essentially, the drug offers minimal side effects, a high quality of life, and favorable odds that it will help patients live longer.
David Miller, the president of Biotech Stock Research in Seattle and a longtime bull on Dendreon, has forecasted the company will set the price at $72,000. How much “pushback” Dendreon faces from insurers will depend largely … Next Page »
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